Refinancing to drive Australian mortgage growth, JPMorgan says

[SYDNEY] Refinancing will drive Australian mortgage growth in 2016 as borrowers gun for better deals after lenders raised interest rates for the first time in five years and the run-up in home values allows them to increase the size of their loans, a mortgage report by JPMorgan Chase & Co said.

The number of borrowers looking to refinance has increased to almost 35 per cent from 10 per cent in early 2015 as they seek better terms, the report in collaboration with research firm Digital Finance Analytics said Wednesday.

Australian mortgages has been the fastest growing segment for the nation's lenders as surging home prices bolstered demand. However, regulatory pressure has forced banks to tighten lending, resulting in growth slipping for two consecutive months.

"The major banks will need to capture the re-financing tailwind by targeting the right customers through the right channels," JPMorgan banking analyst Scott Manning said.

He expects housing credit growth to moderate back to the mid single digits post 2016 as the refinancing momentum stalls. Australian mortgage growth slipped to a six-month low of 7.3 per cent in January, according to data from the Reserve Bank of Australia.

A survey of 26,000 households across Australia by Digital Finance Analytics showed that borrowers were sensitive to interest rate increases and segments such as wealthy seniors and young affluent home owners would struggle if rates were to climb by 200 basis points.

The increase by the banks in home-loan rates in October has already had an effect. Sydney home values fell the most in seven years in the December quarter, data from the statistics bureau show. Home values in the city have climbed about 70 per cent since the end of 2007, while in Melbourne they have risen about 50 per cent, the data showed.

BLOOMBERG